"Chola’s underwriting strategy has ensured that the assets portfolio across vehicle finance, home equity and home loans businesses will have a relatively lower impact due to Covid," the company said in a presentation today.
It has deployed a crisis-management team at its head office to assess business impact and launch cash conservation initiatives, and has identified key personnel across functions with cross-country remote coordination through dedicated communication channels. It has also developed a comprehensive employee communication plan, activated remote working for all employees by providing desktops or other equipment, and has promoting digital disbursements and digital collections. It has also re-negotiated support requirements with key vendors.
In the vehicle finance business, the company sees the rural sector recovering faster and a good Rabi harvest that will support tractor demand immediately after the easing of the lockdown.
Clearance of supply-chain bottlenecks and availability of labour for OEMs are key to ensuring good business. Demand for light commercial vehicles is expected to be significantly lower than in the first quarter of the fiscal year 2021, due to lower private consumption, reduced freight demand and lower disposable income among transporters. That said the company foresees a bounce back in the second quarter.
Used-commercial-vehicle deals are likely to be least impacted in FY21 considering lower market prices, BS VI transitioning and extended time gap in the regularisation of the new vehicle supply chain., Three-wheeler and small commercial vehicle demand is expected to be least impacted due to the nature of deployment in last-mile delivery. The company is expected to benefit from the positive developments in these segments.
"Recovery of heavy commercial vehicles and construction equipment is expected to be slow, given the drop in overall GDP for FY21, the expected drop in infra spends by the government and the expected drop in capex expenses by private sector," said the company.
Cholamandalam's exposure to this segment has come down over the past two years and is below 14 per cent at a portfolio level. Most of its customers are within Tamil Nadu and 95 per cent of the vehicles have come back to their location during lockdown, which protects its asset from risk. Passenger vehicles might see significant drop in the first half of FY21 considering reduced discretionary purchases. Two-wheeler demand is expected to come down and any sale will be predominantly from the rural sector. Demand is likely to rebound in the second half of this year.
In home equity business, the company expects asset quality concerns to pose challenge over the next one year and the company will focus on tier II and III cities and retail and trader segment. Overall housing demand in the housing loan business is expected to be subdued in short term, and in the medium term the retail segment demand is expected to pick up. Chola expects the fresh demand to be subdued in the immediate term.